Forex Today: Gold Falls Below $4,000, BoJ Maintains Existing Policy Settings

What Is Driving Markets on Friday, 30 October?

Heightened volatility marks early trading on Friday, with US stock index futures in focus as investors weigh the latest central bank decisions and macroeconomic releases. The session's economic calendar includes Germany's preliminary October inflation figures, third-quarter Gross Domestic Product (GDP) data for the Eurozone and the US third-quarter Employment Cost Index. Speeches by policymakers from the European Central Bank (ECB) and the Federal Reserve (Fed) are also due.

EUR/USD recovered from a decline towards 1.1100 to finish Thursday higher above 1.1150, as ECB President Christine Lagarde struck a hawkish tone. The ECB had kept its key rates steady at Thursday's October meeting, broadly in line with expectations. At the subsequent press conference, Lagarde said the Governing Council had discussed whether a rate increase was appropriate and that headline inflation was expected to stay "well above target" over the coming quarters. By Friday's European morning, the pair is holding firm, although deteriorating risk appetite is limiting gains and preventing a move through 1.1200.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

What Does the ECB's Path After December Mean for the Euro?

Despite the ECB having “delivered the largely expected pause” at yesterday’s meeting, Commerzbank analysts emphasise that policy is nowhere near autopilot. The bank says ECB President Christine Lagarde “made it clear that, in light of higher energy prices, the Governing Council had indeed discussed another rate hike” and “left the door open to a third rate increase this year in December.”

Rather than the next meeting alone, the wider inflation environment is likely to shape the Euro's course, Commerzbank argues, saying “the more important question is likely to be what happens after December,” for the currency. The analysts believe “much will depend on energy-price developments,” making these a key influence on expectations for the ECB's policy trajectory.

US economic releases, meanwhile, showed third-quarter Gross Domestic Product (GDP) expanding at an annual rate of 3.4%, ahead of the 3.2% increase expected by the market. September's core Personal Consumption Expenditures (PCE) Price Index rose 3.1% year on year, in line with analysts' forecasts. The measure is the Fed's preferred inflation gauge.

A sell-off in Google parent Alphabet sent its shares down more than 10% on Thursday to their lowest level since April. The company said artificial intelligence summaries in search were weighing on advertising revenue and also reported negative free cash flow of about $9 billion. During Friday's European morning, Nasdaq Futures are around 2% lower on the day, while the US Dollar Index is little changed near 101.80. The benchmark 10-year US Treasury bond yield is also broadly steady below 5%, following a fall of more than 1% on Thursday.

USD/JPY recovered after slipping towards 157.00 and was last trading almost unchanged at 157.55. Earlier, during Asian trading, the Bank of Japan (BoJ) concluded its two-day monetary policy review by retaining the short-term interest rate at 1.25%. Speaking after the meeting, BoJ Governor Kazuo Ueda reiterated that the central bank would keep raising the policy rate and adjusting the extent of monetary easing in line with developments in economic activity, prices and financial conditions.

At 7.2/10, the FXS Speechtracker score for Ueda's remarks was slightly below the historical baseline of 7.7/10. This indicated a marginally less confident tone, notwithstanding his clear acknowledgement that underlying CPI inflation is now broadly aligned with the 2% target. His pledge to continue increasing the policy rate and recalibrating monetary easing as activity, prices and financial conditions change conveyed a modest hawkish bias. Repeated references to accommodative financial conditions and government support for growth, however, moderated that message.

Gold's three-day run of modest gains ended on Thursday, when strong selling pressure drove the metal down more than 1%. The decline has continued, with the latest price near $3,980, around 1% lower on the day.

Could Gold Revisit Recent Lows as OCBC Flags Limited Fresh Buying?

Limited buying interest remains a concern for OCBC strategists assessing gold's recent recovery, even "despite some easing in US Treasury yields and oil prices.” Their assessment is that “more notably, Gold’s inability to benefit from lower yields suggests that fresh buying interest remains limited, even as earlier liquidation pressures may be easing.” Technology shares are another source of concern: OCBC says “renewed weakness in technology equities also weighed on sentiment as it raises concerns over another bout of broader deleveraging.” The bank's near-term stance remains guarded: “we remain cautious near term, with further consolidation or another test of recent lows not ruled out,” it says. Friday's Employment Cost Index is in focus, alongside its observation that “the direction of equities, yields and USD will be important to watch.”

GBP/USD remains resilient near 1.3400, trading higher after Thursday's gain of about 0.4%.

How Does Risk Sentiment Affect Markets? FAQs

How do “risk-on” and “risk-off” describe financial market sentiment?

Investors' willingness to accept risk over a given period is commonly described in financial markets using the terms “risk-on” and “risk-off”. Optimism about the outlook characterises a “risk-on” environment, encouraging investors to purchase riskier assets. Concern about the future has the opposite effect in a “risk-off” market: investors prioritise safety and favour lower-risk assets offering greater certainty of returns, even when those returns are relatively modest.

Which assets provide the clearest signals of changing risk appetite?

Rising equities, cryptocurrencies and most commodities other than Gold usually accompany a “risk-on” environment. A favourable growth outlook supports commodity prices, while stronger demand helps the currencies of major commodity-exporting countries appreciate. By contrast, a “risk-off” mood typically lifts bonds, particularly major government bonds, alongside Gold. Safe-haven currencies, including the Japanese Yen, Swiss Franc and US Dollar, also tend to benefit.

Which currencies tend to gain when investors favour risk?

Stronger expected demand for raw materials, driven by increased economic activity, tends to lift commodity prices in “risk-on” periods. This supports currencies whose economies depend heavily on commodity exports for growth. They include the Australian Dollar (AUD), Canadian Dollar (CAD) and New Zealand Dollar (NZD), as well as smaller FX currencies such as the Ruble (RUB) and South African Rand (ZAR).

Why do certain currencies strengthen when investors avoid risk?

During “risk-off” periods, the US Dollar (USD), Japanese Yen (JPY) and Swiss Franc (CHF) are the major currencies that generally appreciate. The Dollar benefits both from its status as the world's reserve currency and from crisis-driven demand for US government debt. Investors view that debt as safe because the world's largest economy is unlikely to default. For the Yen, support comes from greater demand for Japanese government bonds, a large share of which is owned by domestic investors unlikely to sell heavily even during a crisis. The Swiss Franc draws strength from Switzerland's strict banking laws, which provide investors with greater capital protection.